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2 dividend stocks to watch in 2014

Australia’s big banks Westpac (ASX: WBC) and NAB (ASX: NAB) are each expecting rate cuts in 2014. That’ll result in more money entering the stock market and everyone going in search of high dividend yields to improve the lacklustre returns from term deposits and savings accounts.

So what is an investor to do, receive potentially 4% from a term deposit or 7% from a dividend stock? I know which I’d choose.

Provided you invest in the right companies, you could turn a year of low interest rates in your term deposit into a year of capital gains and dividends from the stock market. It might be easier than you think. Once you’ve opened a brokerage account, buying and selling is easy. The hard part is being patient. History has proven it’s time in the market that’s important, not timing the market.

A company which has stood the test of time and brought long-term gains and legendary dividends to shareholders is Telstra (ASX: TLS). Admittedly, its dividend yield was better when it traded around $2.70, but the future is what’s important. It currently yields 5.7% fully franked or 7.9% grossed-up and will likely increase its payout in coming years. In addition, Telstra’s market share and product offering make it almost certain it’ll be around in 10 years’ time. Industrial stocks are more likely to pay consistent dividends.

However if you believe 2014 might not be such as great year after all, you might want to “recession proof” your portfolio and perhaps should consider holding companies that do well when others don’t. For example, Cash Converters (ASX: CCV) makes money from issuing short-term loans and trading used goods. During tough economic times individuals will seek out Cash Converters’ services. At current prices it pays a 5.1% dividend fully franked or 7.4% grossed-up.

Foolish takeaway

Without mining investment bolstering our economy, 2014 will likely bring further rate cuts. Or at least see rates remain at 2.5%. Now could be the best time to grab a big dividend stock.

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Motley Fool contributor Owen Raskiewicz owns shares in Cash Converters. 

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